Mortgage lenders have been pulling and increasing their headline interest rates in the past few days following a flurry of applications from borrowers keen to lock in the lowest deals.
Yesterday (February 22), Co-operative’s lending arm Platform temporarily withdrew its five-year fixed rate of 3.75 per cent.
The lender told FTAdviser it needed to prioritise existing applications, but intends to reintroduce products at the earliest opportunity.
We wouldn’t be surprised to see some of the best available rates in the market disappear and not necessarily be replaced by another lender.Chris Sykes, Private FinancePlatform still has five-year fixes starting from 3.85 per cent with a £1,499 fee.
Meanwhile, Virgin Money also increased its headline rate this week by 0.05 percentage points, to 3.99 per cent.
Director at Private Finance, Chris Sykes, told FTAdviser while he does expect to see further reductions driving average fixed rates down, he does expect some headline rates to disappear and not return or be replaced for the time being.
“Current market leading rates are popular and could almost be argued as too competitive at the moment, although it does depend on how the lender is funded and targeted,” said Sykes.
“We have seen some headline mortgage rates start to increase, especially those with fixed rates below current swap rates.
“We wouldn’t be surprised to see some of the best available rates in the market disappear and not necessarily be replaced by another lender.”
With a smaller pool of borrowers to pick from this year as UK Finance anticipates a 15 per cent drop in mortgage lending, banks and building societies have been trying to compete with lower rates to win more business.
Sykes explained that typically larger lenders are equipped with more resources to deal with high demand as seen over the past two years.
Last year, a number of smaller lenders had to step out of the market for weeks at a time to work through application black logs.
Following rock bottom rates in 2021, 2022 saw rates climb as the Bank of England notched up the base rate and a rapidly changing interest rate environment ensued which made it hard for lenders to price products.
Since the "mini" Budget in the autumn of last year, mortgage interest rates have increased at a faster rate. But by December, many lenders were reducing their rates again.
Swap rates ‘on march up’
Director at Harmony Financial Services, Imran Hussain, said swap rates, a leading indicator for mortgage rates, have been “bouncing around” of late.
“Five-year swap rates are now around 3.87 per cent, and the two-years are around 4.2 per cent. With swap rates bouncing, we’ll see lenders with headline rates - ie, those five-year fixed rates below 4 per cent - start to remove them or start to change them immediately,” Hussain explained.
“They were there for headlines and that was always going to happen.”
The majority of rates are still closer to 4.5 per cent across the market, Hussain explained. “That’s where they’re likely to remain.”
SONIA swaps
| Current | 21 Feb 2023 | 23 Jan 2023 | 22 Feb 2022 | |
|---|---|---|---|---|
| 1 Year | 4.443% | 4.406% | 4.285% | 1.380% |
| 2 Year | 4.285% | 4.252% | 4.043% | 1.708% |
| 3 Year | 4.115% | 4.076% | 3.825% | 1.749% |
| 5 Year | 3.874% | 3.833% | 3.599% | 1.647% |
| 7 Year | 3.716% | 3.677% | 3.449% | 1.534% |
| 10 Year | 3.622% | 3.585% | 3.364% | 1.448% |
| 15 Year | 3.588% | 3.556% | 3.334% | 1.370% |
| 30 Year | 3.446% | 3.417% | 3.196% | 1.223% |
Updated 23 Feb 2023 | 10:00 GMT (Source: Chatham Financial)
Owner of Riverside Mortgages, Lewis Shaw, said swap rates were “on the march up”.
In the past month, both two and five-year swap rates have climbed around 0.25 percentage points.
“Lenders won't be able to sustain low 4 per cent fixes for long if this persists for any duration,” said Shaw.
Earlier this month, Shaw flagged a drop in service at Platform - one of the latest lenders to pull a headline rate.
The technical issues saw the Platform's website go down for hours. A spokesperson said the lender has been busier than normal this past month, which Shaw put down to its headline rates.
"The lender sits at the top of the rate tables raking in business it can’t cope with. It’s ludicrous," he said.
Some lenders are, however, continuing to cut some of their lowest rates. HSBC announced its fourth rate cut this year yesterday (February 22).
The high street bank is now offering borrowers a three-year fix with no fee at 3.89 per cent, down 0.35 percentage points.
ruby.hinchliffe@ft.com
